When you have a company vehicle, you have to pay company car tax. That’s just a fact. However, the way vans and cars are taxed is different.
And there may be some of you who are in the position to either have a company car or a company van.
This then begs the question; should you get a company car or a company van?
In this article, we look at the ways the two are taxed, and which one would be the best option for you.
Do I have to pay company car tax on a company car?
Most of the time, you will have to pay company car tax on a car. The only exemption is if you do not use the company car for personal use.
This means that you leave your car at your place of work and only use it for business purposes. These could include meeting clients or making deliveries. Commuting does not count as a business journey. In the eyes of the HMRC, commuting counts as a personal journey.
You do not have to pay company car tax if your car is a ‘pool’ car either. This means that two or more employees share the car for things such as travelling to training days. The car is still left on business premises overnight and at weekends.
If you do use your car for commuting, or you are the only one that uses it, then you will have to pay company car tax.
How is company car tax calculated for a car?
So, we’ve established that you will probably have to pay company car tax on your company car. How is it calculated?
How much you will pay in company car tax is determined by the following;
- The P11d value of the car
- It’s CO2 emissions
- Your personal tax bracket
The dominating factor, however, is how much CO2 your car emits. So a general rule is; the lower the CO2 emissions, the lower the company car tax.
There are several bands and how much you will pay depends on what band your vehicle fits in. In April 2017, there will be fifteen more bands introduced, and eleven of those will apply to low emission vehicles. We’ve provided the new table for you to look at below.
Changes to salary sacrifice schemes
As we mentioned above, there are going to be new bands introduced as of April 2017, but that isn’t the only thing that is changing.
There will also be changes to salary sacrifice schemes. Before, salary sacrifice schemes were taxed considerably less than their cash equivalent (if at all). Now, however, this will not be the case. Instead, many salary sacrifice schemes (gym memberships, mobile phones and company cars) will be taxed the same as if the employee was receiving the cash.
So, your company car will be taxed on whichever is higher; the BIK rate (how much you are paying currently) or how much you would pay if you were given the cash. You should note that if you are getting a car via a salary sacrifice scheme then it will be treated as a company car.
As you can imagine, this hasn’t gone down to well. The BVLRA have rightly pointed out that this unfairly targets those with low emission company cars, as they have low BIK rates.
There is an exemption, however, and that comes in the form of ultra-low emission vehicles.
Ultra-low emission vehicles are vehicles that emit 75g/km of CO2 or less. These ultra-low emission vehicles will only be taxed according to their BIK rates. For more information on this, you can read our article here.
Do I have to pay company car tax on a van?
If you have a van, then you will probably still have to pay company car tax. However, there are some key differences from how company car tax works with cars.
You do not have to pay company car tax if your van is used for business purposes only, or is a pool van.
The HMRC classifies a business journey as a trip;
- To a temporary workplace
- That is made part of work (travelling between appointments, for example)
You can also use your car for ‘insignificant’ private journeys, such as stopping to pick up a newspaper on the way to work.
A pool van, on the other hand, is a van that;
- Is available for use and is used by more than 1 employee
- Is available to each employee, so they can do their job
- Isn’t ordinarily used by 1 employee and 1 employee only
- Not normally kept at or near employees’ homes
- Only used for business journeys
- Limited personal use is allowed for things like driving the van home to get an early start the next day.
What counts as a van?
Before we go further, what actually counts as a van? It may seem like a bit of a silly question, but it could be a big factor in whether you decide to get a company car or a van.
According to the HMRC, a van is;
- A vehicle that is primarily constructed for the conveyance of goods or burden
- A gross vehicle weight – fully laden – not exceeding 3,500kg.
Work buses and mini buses do not count as vans. But, double cab pickups can. Which is what we are going to discuss in a little bit.
How is company car tax for a van calculated?
Company car tax for a van is calculated differently to how a car is calculated. Instead of a sliding BIK rate, that is, the amount you pay depends on a variety of factors, there is a fixed rate. You can then reduce this by doing a number of different things.
If you are using your van for private journeys, then there is a standard value of £3,150. You can reduce this if;
- The employee cannot use the van for 30 days in a row
- The employee pays the employer privately to use the van
- Other employees use the van
- You divide the £3,150 by the number of employees that use the van
If you are paying for the fuel, then you will have a standard rate of £594. This can also be reduced if;
- The employee can’t use the van for 30 days in a row
- The employee pays back their private fuel
- You stop providing fuel during the tax year
So, regardless of how much CO2 your van emits, or your personal tax bracket, you will pay a fixed amount. This amount can then be reduced by doing any of the above.
Company car tax for zero emission vans
Can I use a pickup as a company van?
We mentioned pickups earlier, and there’s a reason we are coming back to them. 4×4 pickups have become increasingly popular, and with the new company car tax changes coming into effect, we predict that they will become even more popular. For a pickup to qualify as a company car, it must have a payload of at least one tonne (excluding a removable hardtop cover).
Should I get a company car or a company van?
After all that, which is best for you? In all honesty, it depends what is best for your situation. Obviously not everyone can get a company van.
However, the fixed rate for a company van plus the fact that a 4×4 pickup can be classed as a company van makes this an appealing option for many. For example, if you chose to purchase a 4×4 pickup as a personal car or even as a company car, the amount you would be paying in tax would be considerably more than if you were to use it as a company van. Particularly if you were using it as a company car, as you would be subject to the BIK rate changes.
Because of the changes to salary sacrifice schemes, getting a company van might be a better option to some people, depending on their situation. It might also be worth comparing how much you might pay in company car tax with an electric or ultra-low emission car and an electric car. As we have said above, there is a fixed rate for zero emission vans. So, that’s another thing worth looking at.
However, if getting a van isn’t an option, then you might want to look at an ultra-low emission vehicle. These mean that you will be as tax efficient as you can be on a car, and instead the amount you pay will be in accordance to the BIK rates.